OXFORD LECTURE 14 NOVEMBER 2011

MARKETS RULE, OK? THE COALITION GOVERNMENT’S HIGHER EDUCATION REFORMS IN CONTEXT

Professor Roger Brown Liverpool Hope University

Edgar. [aside] O gods! Who is’t can say “I am at the worst”?

I am worse than e-er I was.

...And worse I may be yet. The worst is not.

So long as we can say “This is the worst”.

(King Lear Act IV, Scene 1)

Following the report of the Independent Review of Higher Education Funding and Student Finance (the Browne Committee), the White Paper Higher Education: Students at the Heart of the System (Department for Business, Innovation and Skills, 2011) envisages a series of radical reforms to the UK – and specifically the English – higher education system. I propose to describe the immediate background to these reforms and then put them into a series of contexts: the evolution of government policies towards higher education since the early 1980s, the worldwide marketisation of higher education, and the Coalition Government’s reforms to other parts of what used to be called the public sector. Finally I shall look at the possible consequences of the reforms in the light of what we know about the impact of markets in higher education.

So I shall be covering:

1. The reform programme and the rationale for it2. The meaning of the marketisation of higher education3. The likely impacts on the system.

It should be noted that there are many uncertainties, not least how the new fee levels will affect demand.

The Reform Programme

You will no doubt be familiar with the Government’s reform programme. The main elements are:

1. A massive (80%) reduction in the direct public funding of university teaching. Some subjects, notably the STEM disciplines, will still receive some direct subsidy but for the great majority of subjects what are intended to be full cost fees are being introduced;

2. The introduction of genuine price competition, covering both tuition and living costs, and involving both direct market and quasi-market measures;

3. The modification of entry rules to permit private and “for profit” providers, as well as FE colleges, to offer undergraduate degrees under their own powers; and

4. A huge expansion in the amount of information for students and potential students.

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It has proved very difficult to find a succinct statement of the rationale for these reforms. However, the White Paper Higher Education Students at the Heart of the System says:

Our reforms tackle three challenges. First, putting higher education on a sustainable footing. We inherited the largest budget deficit in post-war history, requiring spending cuts across government. By shifting public spending away from teaching grants and towards repayable tuition loans, we have ensured that higher education receives the funding it needs even as substantial savings are made to public expenditure. Second, institutions must deliver a better student experience; improving teaching, assessment, feedback and preparation for the world of work. Third, they must take more responsibility for increasing social mobility. (Department for Business, Innovation and Skills, 2011: Executive Summary, paragraph 4).

The Secretary of State, Vince Cable, has said:

By mid-decade, I want to see a sector whose global reputation is enhanced beyond current high levels; whose contribution to economic growth is commensurate with its potential to stimulate growth; a competitive sector – with a healthy presence among FE colleges and private providers – where institutional autonomy means more than it does now, because there are fewer price or number controls; and a sector in which student choice extends beyond subject and location to mode and length of study (Cable, 2011)

Writing in the Times Higher Education on 26 May, the Minister for Higher Education, David Willetts, outlined the benefits of the new regime as the Government sees them (Willetts, 2011a). Since only the estimated 30 per cent of loans not repaid will technically count as public expenditure, claims on the taxpayer will be reduced. Innovation will take place as the market is opened up to “a wider range of providers” and, therefore, “to doing things differently”. There will also be improvements in the quality of provision since universities will generate their revenue by focussing on the “teaching experience”. Finally, and in fulfilling this proviso, universities will remain well funded - with ten per cent more cash by the end of the planning period (2014/15).

The basic rationale for the new regime is that our higher education system will be more effective and more efficient if the money follows the student. In this way popular institutions can expand in response to student demand; less popular institutions have either to raise quality or perish. This is all on the footing that, to quote the Browne Committee:

Students are best placed to make the judgement about what they want to get from participating in higher education (Independent Review, 2010: 29).

In short, the argument is that markets are the best way of allocating resources; higher education is like any other product or service; so the best way of providing higher education is to make it as much like a market as possible. Ministers are even claiming that other countries are watching closely to see whether they might emulate the UK (Willetts, 2011b).

In a moment I shall be asking what the marketisation of higher education really means. Let me first note that a number of people - including the Chief Executive of the Higher Education Funding Council for England, Sir Alan Langlands - have been arguing that the emphasis upon change has been excessive, that institutions will not be out of pocket if they are able to charge fees of £7,500 or more, and that we shall still not have a market in student education (or university research). It is certainly true that prices (fees) will continue to be capped, and

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that student numbers will mostly be controlled. The existing barriers to market entry are being lowered but not abolished: it will still be impossible for anyone just to set up a university or a university college. There will remain a strong regulatory regime, albeit one that is more “risk-based” than hitherto.

Nevertheless, after 2012 universities will be getting most of their funding for teaching through fees, as opposed to the historic mixture – now, roughly two-thirds to one-third- of grants and fees. There will be real and substantial price competition in the undergraduate market, including from FE colleges and new commercial providers such as the Pearson publishing empire. The fees will be expected to cover the full costs of teaching the course, and students (as graduates) will be having to find these costs from their own pockets. It is true that most will borrow the money from the Government, but they will also be incurring much higher levels of debt. Together with other reforms to enhance the student “voice”, this is bound to lead students to behave more like ordinary consumers, and universities to behave more like normal commercial enterprises. In fact, most institutions will be private ones, not only de jure (as now) but de facto. Indeed the OECD has calculated that after the reforms the private/public funding balance will be 60/40 compared with 40/60 as now (Willetts, 2011b). There can therefore be little doubt about the direction of travel. As Vernon Bogdanor put it in an article in the Times Higher last year:

It seeks to replace one model of higher education, a statist model, with an alternative one, that of a self-regulated market in which students rather than the state provide the dynamic that powers the higher education system. (Bogdanor, 2010).

The Reform Programme in Context

I now turn to the second part of this lecture, the context of the reforms. I want to mention three such contexts: they are not necessarily mutually exclusive.

The first is the growing marketisation of higher education which was the subject of my recent edited book (Brown, 2011b). No major developed higher education system has the features of a true market. However some systems exhibit more market features than others. A marketised system is one with the following principal characteristics:

- Institutions having a substantial degree of legal, financial and operational autonomy – for example, being able to enter into legal contracts, employ their own staff, etc.

- A liberal system of market entry, including both private not-for-profit and for-profit providers;

- The separation of teaching and research funding;- A significant amount of competition between institutions for students, with

students having a genuine choice of what, where and how to study;- Tuition fees which represent all or a significant share of the costs of teaching;- Substantial quantities of information to guide student choice.

Such marketisation usually goes hand in hand with a greater degree of private funding. The term “quasi-markets” has been coined to describe the organisation of the supply of collective services on market lines where very little private capital is involved (Le Grand and Bartlett, 1993). Research is nearly everywhere funded on quasi-market lines.

Developed systems which merit this description as well as the UK include the United States, Australia, New Zealand and parts of Canada. Japan and Korea both have substantial private

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sectors and high levels of private expenditure on both tuition and support. Many other systems are moving in this direction (for a fuller discussion, see Brown, 2011b: 16-21). As with the reform programme here, the reasons are a mixture of pragmatism (in the face of expansion and diversification) and ideology.

The second context is the historical development of British higher education. The reform programme can be seen as the latest – and, I would argue, the most far-reaching – stage in a progressive process of marketisation that may be seen to have begun with the introduction of full cost fees for overseas students in 1980 (and which is the subject of the book that I am currently working on with the help of Helen Carasso: Brown, In preparation). Other important steps were:

1. The introduction of selective research funding, with the first RAE in 1986 and subsequent exercises in 1989, 1992, 1996, 2001 and 2008;

2. The increase in the level of the (still state-subsidised) student fee in 1989;3. The introduction in 1990 of student maintenance loans, initially to “top up”

grants;4. The abolition of the binary line and the expansion in the number of universities

in1992. A further wave of universities was created in 2004/5;5. The introduction of attempts to link teaching funding to quality judgements with

Teaching Quality Assessment (soon abandoned in England but continued in Scotland and Wales until 2001);

6. The introduction of top-up tuition fees in 1998 and variable fees in 2006;7. Increases in student information from 2001.

The third context is the Coalition Government’s reforms of what used to be called the public sector. Reviewing the Government’s policies in The Political Quarterly earlier this year, Peter Taylor-Gooby and Gerry Stoker wrote:

The coalition programme is more than an immediate response to a large current account deficit. It involves a restructuring of welfare benefits and public services that takes the country in a new direction, rolling back the state to a level of intervention below that in the United States – something that is unprecedented. Britain will abandon the goal of attaining a European level of public provision. The policies include substantial privatisation and a shift of responsibility from state to individual. (Taylor-Gooby and Stoker, 2011)

What then will be the impact of these reforms? It is time to turn to the third and final part of this lecture.

The Impact of the Reforms

So what would the Browne Committee and the Government have discovered if they had bothered to consult the relevant scholarly literature on the marketisation of higher education?

The literature shows pretty clearly that the main benefits of marketisation are greater efficiency and greater responsiveness. Market competition increases the efficiency with which resources are used since institutions would otherwise be unable to survive, be competitive or obtain the resources needed for their activities. It makes publicly allocated resources go further whilst stimulating institutions to increase their funding from private sources. Market competition also makes universities and colleges more attentive to the needs, interests and views of external stakeholders, especially students and prospective

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students and their families, but also employers, public bodies and funding agencies. It may also make them more innovative and entrepreneurial. Finally, market competition may keep in check activities that are of interest to the faculty but that may have no wider utility or value (Brown, 2011a: 20-22).

But there are also drawbacks. These arise chiefly from information market failure: the difficulty – in reality, the impossibility – of obtaining timely and suitable information about product quality. It is conventional in the economic literature to view information market failure in terms of “asymmetry”, a situation where access to information about quality varies, for example, between suppliers and consumers. However the problem in higher education is not so much that information is distributed unequally, but that no one has the necessary information. Higher education is what Weimer and Vining (1992: 75-76) term a “post-experience” good, the outcomes of which may not be apparent (if at all) for many years, and which will rarely be traceable to any particular educational experience (cf., Lovelock, 1983 and many others). In other words, as Gordon Winston pointed out some years ago: “The perfectly informed customer of economic theory is nowhere to be seen” (Winston, 1997: 91). 1

However, markets need information like a fire needs air. What happens therefore is that students and their advisers seek, and institutions try to provide, indirect or symbolic indicators of quality (McPherson and Winston, 1993: 81). The indicators chosen usually refer to prestige, reputation or status (Brewer et al., 2002; van Vught, 2008; and many others). This then reinforces higher education’s core social function of allocating status through the granting of credentials, a function that has become of even greater importance as the number of top level positions in society has failed to increase as much as the number of those qualified to occupy them (Collins, 2002). Higher education has become a key part, and exemplar, of what the American economist Robert Frank has christened the “winner-takes-all” society (Frank and Cook, 1995). 2, 3

The whole process has been well summarised by my good friend David Dill:

Because the new competitive market is characterized by inadequate and inappropriate information, an ambiguous conception – “academic prestige” – comes to represent academic quality in the public mind, which can lead to a price-quality association that undermines productive efficiency. The distorting influence of prestige in both the US and UK markets means that the educational costs of elite universities provide a “price umbrella” for the rest of the system and present spending targets for less elite institutions that wish to compete by raising their prices (Massy, 2004). Competitive markets thereby encourage an academic “arms race” for prestige amongst all institutions, which rapidly increases the costs of higher education and devalues the improvement of student learning. As noted in both the US and UK, an unregulated academic market can lead to a situation in which no university constituency – students, faculty members or administrators – has a compelling incentive to assure academic standards. This is a recipe for a classic and significant market failure in which the rising social costs of higher education are not matched by equivalent social benefits (Teixeira et al, 2004) (Dill, 2007: 67).

The inevitable consequence – given the market and political power exercised by the leading institutions in most countries – is the creation or, more likely, the intensification of stratification, both of the institutions and of the socio-economic constituencies they serve. The other main “external” consequence is the reduction in institutional diversity as

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institutions pursue prestige, the process often referred to as “academic drift” (Pratt and Burgess, 1974). An important factor, incidentally, in both stratification and the reduction of diversity is the power exercised by the faculty in the longer established institutions (Calhoun, 2006; and many others).

Market competition also has an impact on the internal functioning of institutions, with an increase in the proportion of resources devoted to management and administration and an increased differentiation of activities, structures and personnel. It may also diminish collegiality and reduce the ability of the academic community to control or influence the “academic agenda”: what is to be taught and enquired into. A major factor here is the ever increasing growth of knowledge and the concomitant increase in specialisation [Laurie Taylor joke].

The impact of market competition on quality is strongly contested. Market competition may improve quality as institutions respond to students and research funders by improving quality of service. But market competition may also damage quality by commodifying knowledge, creating or reinforcing student “instrumentality”, and lowering standards through grade inflation, plagiarism and cheating. It may also lead to a diversion of resources away from learning and teaching to activities like marketing, enrolment, student aid and administration (and in the US, athletics) that are less directly relevant to student education.

Finally, market competition may change higher education’s relationship with society. Universities typically enjoy a high degree of autonomy because they produce valued public goods such as the creation of knowledge for its own sake, a more capable workforce, a better educated citizenry, etc. For the same reasons, institutions often benefit from tax breaks, charitable status, etc. But if universities increasingly behave like normal commercial entities the continuation of these concessions may be called into question. To quote one of the leading historians of American higher education, Roger Geiger:

The classic justification for the non-profit status of educational institutions is that it redresses information asymmetry between buyers and sellers. Because consumers cannot adequately monitor the quality of educational services, they prefer dealing with institutions they can trust not to take advantage of them to make a profit. But maximising revenue now looks a good deal like making a profit. Private universities now engage in such deceptive practices as awarding less aid to early admission students or front-loading the first year of aid packages (McPherson and Schapiro, 1998). Students in the aggregate may gain greater wages through these arrangements, but each student must fend for themselves. Trust in this relationship can no longer be assumed (Geiger, 2004: 171).

So against this background, what changes can we expect to see in the UK – or at least English - system after 2012?

First, we shall see new providers entering the market: further education colleges, private for-profit companies, perhaps even schools. How quickly they will come, and what impact they will have, is harder to determine. FE colleges currently provide about 6% of all higher education (UniversitiesUK, 2011). Up till now they have tended to cater for specialised market niches. Similarly, in America the for-profit providers have mainly attracted students in work studying applied subjects such as business, IT and computing. However there is a real issue for the sector not only in terms of the downward pressure on prices but also in terms of these new providers competing with existing universities and colleges for the overall level of resource.

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Second, we shall see even bigger differences in resourcing and status between different institutions: stratification. The key here is research funding, the “elephant in the room” in all discussions of higher education policy. So long as research funding remains highly concentrated – with four institutions receiving between them nearly a quarter of all public research funding, and only 25 institutions having together more than three quarters of the total – then it gives a huge advantage to research intensive institutions in both resourcing and reputation, an advantage which they can then enhance by charging premium fees. These are also of course the institutions that will benefit from the removal of limits on the recruitment of better qualified students. To refer to the HEPI analysis of the White Paper:

The logic of the twin measures [the AAB threshold and core plus margin] is to create two sets of institutions, a new binary divide. One group will charge fees over some Government limit (currently £7,500) and be free to recruit students without any government quota. Their students will be eligible for a range of bursaries and scholarships, and there will be increased resources for teaching. The other group of providers will charge below a fee level set by the Government, in effect a maximum fee. Each institution would be allocated a quota of student places which would cover part-time as well as full-time students that it could not exceed. There would be fewer resources for teaching and less generous bursaries and scholarships than awarded by the other institutions.(Thompson and Bekhradnia, 2011: paragraph 216).

A worked example may help here. Both universities have 2,200 funded students at present. University A has 2000 students with AAB grades removed from its core numbers. It has set a fee of £9,000. It is left with 200 places in its core allocation i.e. students admitted without AAB. This 200 is reduced by 8% as a contribution to the margin of 20,000 places. Hence it loses 16 places from its core, a loss of £144,000 in 2012. It can seek additional numbers of AABs at full price to offset this. University B has also set a fee of £9,000. It has 100 AABs. The core is then 2,000. This is reduced by 8%. It loses 160 students. It must reduce its fee to below £7,500 if it is to seek to win some of these places back. Unless it also chases AABs, it stands to lose £1.44 m in 2012. The margin is expected to be increased in later years. (This is taken from Million Plus’s Supplementary Evidence to the current BIS Inquiry into Higher Education).

It may not be too fanciful to see this whole exercise as an attempt by the Government to give a small number of elite institutions what they say they want consistent with the Government’s economic and other priorities. Indeed the Secretary of State, Vincent Cable, more or less admitted this in a speech to the Girls Schools Association in Manchester last November. He is reported to have said that one of the reasons for raising the fee cap was to head off “Oxford, Cambridge, the London School of Economics, University College London and a few others” from going private. “If we had not opened up the system, they would have a very strong incentive to do so” (Gill, 2010). (I am very grateful to Professor Geoffrey Alderman for drawing this to my attention).

Although they have been careful in their written statements, the leaders of the Russell Group have made little secret of their preference for the total removal of the fee cap. The Vice Chancellor of Leeds, Michael Arthur, the Group’s Chair, made this clear in comments to The Guardian in February (Vasagar, 2011). In return for accepting that the fee cap would continue, and for supporting the post-Browne package, the elite institutions got a substantially higher level of fee, substantial liberation from student number controls and some direct support for the STEM subjects largely offered in their institutions, not to mention

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some protection for their research funding, as well as confirmation that the long standing concentration of research funding will continue and perhaps even be intensified.

Whatever the reasons, the outcome will be that students at the elite institutions will have far more spent on them and their education than students at other institutions. They will get better paid and more numerous staff, better libraries and laboratories, better residences and recreational facilities, and so on. Since these institutions recruit overwhelmingly from more affluent backrounds, this truly is a case of “to them that hath”. (A similar phenomenon can be foundin America). 4

I have hitherto been speaking of greater differentiation between institutions. But the case of Coventry University College suggests an internal differentiation as well. Coventry University has announced that it will be offering “no frills” degrees at £4,800 a year. The courses will be more intensive but students will have restricted access to learning support (Vasagar, 2011b). This raises a number of issues, not least comparability of degree standards.

Next, and partly as a consequence of this increased stratification, we shall see no significant improvements in differential participation [Explain]. Some caution is needed here because, as anyone who has studied the subject for more than five minutes will know, the causes of differential participation go well beyond higher education policy or institutions. However there are several reasons for supposing that the Government’s higher education reforms will not reduce differential participation:

1. The cutbacks in Aim Higher and a number of other programmes specifically aimed at widening participation;

2. Work at London Metropolitan University suggests that the very fact that many of the former polytechnics are low status institutions is in itself a disincentive for some working class participants (Archer, 2003);

3. At the same time as the elite institutions become more selective, they generally decline to expand in line with demand for fear of losing their exclusiveness. It will be very interesting to see how many of the more selective institutions take advantage of the relaxation on the number of AAB students to expand;

4. In America, student aid has increasingly been used as a competitive tool. What is called “merit aid” has come to rival need-based aid as a means of boosting institutions’ student entry qualifications and rankings. In Britain, since 2006 institutions have of course been offering competitive aid packages but these have not so far had much impact on student behaviour (once again, the most generous terms have been offered by the wealthiest institutions);

5. To the extent that our system is moving in a market direction, this must be to the advantage of students and prospective students with the social capital and networks to navigate the system, at the expense of those who do not. This has certainly been a factor in the marketisation of schools as Julian Le Grand pointed out more than twenty years ago (Le Grand, 1987).

Next, we can also expect to see some institutional restructuring as well as some rethinking of the curriculum.

We are beginning to see alliances develop between major institutions, such as that recently announced between the universities of Liverpool and Lancaster. Institutions will find that there is safety in numbers. In a report he is currently writing for the Higher Education Policy Institute, Brian Ramsden notes that there have been no fewer than 40 mergers in UK higher education in the past 16 years. These have mostly involved the “takeover” of a small

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specialist institution by a larger comprehensive one. We can expect this trend to continue, reinforced by the fact that some regions are vulnerable by being both subject to demographic decline and by being net importers of students from more economically buoyant regions, many more of whom may in future prefer to study at home. Their local communities are also more fee-averse (Baker, 2011a). There will also be less movement between the different regions of the UK (Matthews, 2011b). 5

As regards the curriculum, Brian’s report discerns a long term trend at undergraduate level away from science and technology subjects towards the creative and performing arts, media studies and politics. Students are clearly more in touch with the economy than the Government! It is of course very hard to try to predict whether these trends will continue. But what is clear is that without the protection of the block grant, institutions – especially “recruiting” ones – will face a more volatile demand curve and be less able to cross-subsidise subjects, modes or activities for which there is little market support. This is likely to be very destabilising and this lack of stability may be permanent. Hence the rather pathetic demands of “steady as you go, one step at a time, etc.” from the new Chair of UniversitiesUK, Professor Eric Thomas. 6

Concerns have also been raised about the impact of higher fees etc on graduate education. There are fears either that the increased cost of undergraduate education will deter people from graduate level study or that postgraduate intakes will be skewed in favour of overseas students and the wealthy, with clear implications for the future supply of UK-educated academics, especially from less favoured backgrounds. Interestingly, the US has just seen the first dip in graduate enrolments in seven years, with particular falls in subjects like education, business and public administration, where grant support is less common (Williams June, 2011).

Next, the new funding system will be negative for quality and quality assurance. In the time available I can only summarise the argument (I shall be setting it out more fully in a lecture at the University of West London next month). The main points are:

1. It is not yet clear whether the overall resources for teaching are being cut but some institutions are almost certainly facing significant reductions in revenue. They may be able to make further efficiency savings but they also face increasing energy, pensions and other costs;

2. The lowering of entry barriers to permit private “for profit” organisations that do not teach or research will almost certainly reduce quality;

3. The emphasis on greater information for students is largely a waste of resources and could damage quality by diverting attention from the information that really matters, what institutions learn about their quality assurance processes and what needs to be done to make them (even) better;

4. Market competition poses a direct threat to peer review and the notion of a collective academic community setting and maintaining standards through reciprocity and exchange;

5. Risk-based approaches to quality assurance are neither feasible nor desirable;6. The new regulatory framework will almost certainly increase institutions’ transactions

costs, in spite of official assurances to the contrary;7. If the Government’s legislation is successful, our present semi-independent

arrangements for regulating quality through the QAA will be replaced by ones under a government agency, HEFCE.

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Finally, there is the issue of value for money. If you have been involved in making and studying higher education policies for as long as I have you become pretty inured to irony. But even to my jaundiced eye, the reform programme sets a new standard – whether high or low, I leave you to say.

If there is any rationale for the new regime, it is to increase value for money, whether we are talking about the taxpayer or the student. To be sure, the reform programme will lead to some increases in efficiency: incremental improvements can always be made. But even leaving aside possible risks to quality, there will also be reductions in value for money. Let me suggest a few:

1. Resources, both public and private, are being diverted from institutions that are more efficient – at least as measured by SSRs – to those that are less efficient;

2. As already noted, resources will be diverted from direct teaching and learning and support to activities that are less relevant to student education but help to increase institutions’ competitiveness. Commenting on the Browne Report in The Guardian last year, Professor Claire Callender spoke of the development of a whole industry around the “black arts” of enrolment management, as in the US. “For instance, calculating how many students can a university afford to recruit at X price, and how many at Y price, and what price discount can be offered to how many students” (Callender, 2010). We can also expect an increase in merit-based scholarships from the leading universities, at the expense of needs-based ones, again something already rampant in the US (Lederman, 2011);

3. Again as already noted, there is bound to be an increase in institutions’ transactions costs as they navigate a more complex regulatory framework, not to mention annual bidding rounds, access agreements, price setting etc.;

4. There will be a reduction in transparency as the public funding of student education is channelled through the Student Loans Company rather than HEFCE.

Conclusions

It is time to bring this somewhat dreary set of thoughts to a close.

Reviewing the first British performance of Berg’s great opera Wozzeck at Covent Garden in 1952, the Daily Telegraph critic wrote; “nasty and depressive it all is.” As I said earlier, the White Paper gives three reasons for the reform programme: sustainability, improving the student experience, and social mobility. Let me briefly address them.

It is too soon to say whether the White Paper will solve the problem that has dogged successive governments at least since the early 80s, how to fund a mass system within real or perceived public expenditure constraints without loss of quality. The White Paper speaks of institutions having ten per cent more cash at the end of the current funding period, 2014/15 (in itself a considerable real terms reduction). But there are no figures for projected spending per student or for the share of GDP devoted to higher education. No one knows what the market response to increased fees will be. So the jury has to remain out on this, although the continuing heavy cost of the student support/loan repayment regime, as well as the difficulty of predicting this year by year, suggests that we may be back at this again before very long. 7

It is possible to be less equivocal about the other two challenges.

British universities and colleges are already in fierce competition for students and income, not only with one another but with more and more institutions from overseas. They face considerable claims on their budgets from pensions and other staff costs, utility prices and

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carbon reduction commitments. They are also efficient, with high student/staff ratios but also respectable retention and graduation rates (St Aubyn et al., 2009). The unit of funding per student is still lower than it was twenty years ago. The new information requirements will add to institutions’ costs without any commensurate benefits. So far from improving the experience of most students, the core plus margin methodology will create, as it is quite clearly intended to, a much more sharply differentiated sector with far greater disparities in institutional resourcing and esteem than anything we have hitherto seen, and without any educational justification or rationale. In effect, a new binary line is being created with a small group of “imperial universities” sitting on top of an increasingly pressed sector trying to provide an adequate education for the mass of the population without having the necessary resources to do so.

On social mobility, there has since the middle of the decade – and in spite of the rise in fees – been an increase in the number of university entrants from deprived areas. This has almost certainly due to increased levels of school spending under the previous government (Dorling, 2012). Yet the recent Institute for Fiscal Studies report (Chowdry and Sibieta, 2011) indicates that public spending on education in the UK will fall by 3 ½ per cent per year in real terms between 2011 and 2015. IFS say that this would represent the largest cut in education spending over any four-year period since at least the 1950s. This is bound to affect social mobility.

In sum, like the report of the Browne Committee that preceded it, the White Paper is an unconvincing mixture of ideology and pragmatism. If implemented as the Government intends, it will leave us with a sector that is much more heavily stratified and much less institutionally diverse without any compensating gains in quality or equity. This may be good news for some of the Russell Group institutions with their aspirations to “world-class” status. It is bad news for virtually everyone else.

Thank you for listening to me. 8

Notes

1 In a paper published by the Higher Education Policy Institute a few years ago, I set out the conditions that would need to be met if the market theory of information on which the Government’s reforms rest were to be effective. In view of the turn that government policies have taken since I make no apology for returning to it now. The conditions were:

1. It must be possible to produce valid and reliable information about the relative quality of comparable programs and awards in a subject or discipline at different institutions2. This information must be available to students and other decision makers in a timely, accessible and equitable fashion3. It must be tailored to the wants, needs, resources and circumstances of each student or potential student4. It must be interpreted and acted upon in a mature and rational manner by that student and/or those advising them;5. It must lead to action by providers to adjust price and/or quality (Brown, 2007).

As I said in my paper, one has only to have the most superficial acquaintance with higher education as it is currently provided to appreciate the impossibility of these conditions being fulfilled.

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Ben Jongbloed put the issue very well some time ago:If individuals are fundamentally rational and the problems are [uncertainty, imperfect information] the potential role for policy would be to try to address those market imperfections by helping students to make the decisions they want. If, on the other hand, students are fundamentally irrational then giving them more information or eliminating market imperfections will not necessarily improve outcomes. In the latter case, there may not be a need to strengthen consumer choice in higher education, and it might be better...to let educational authorities offer the programmes they deem best for students rather than let student preferences drive programme selection (Jongbloed, 2006: 25).

2 “Winner-takes-all” markets are ones where small differences in performance translate into large differences in reward. Frank argues that these used to be relatively rare but the information revolution means that we can easily discover who is the top performer in any market so that everyone else is reduced to being an also-ran.

3 Hansmann (1999) argues that higher education is an “associative good”, one where, in the absence of direct information about product quality, a major consideration for purchasers is /are the personal characteristics of the other customers. What a university is “selling” therefore is its students. Where such a provider is a non-profit entity there is a strong tendency for customers to become stratified across institutions according to their personal characteristics (a private, for-profit college would have a stronger incentive to use price to ration admissions).

4 The Delta Cost Project recently reported that:

Disparities between rich and poor institutions in overall spending levels have never been larger. The ‘new money’ coming into higher education is coming either from student tuitions or user fees. Rich institutions are getting richer and poor institutions are getting poorer. (Goldenstyk, 2011; cf. Brown, 2011a)

5 This rationalisation has already commenced in Wales and Scotland. In June 2011 the Higher Education Funding Council for Wales issued a consultative document proposing a substantial rationalisation of the sector, with the ten existing separate institutions being reduced to six (Higher Education Funding Council for Wales, 2011). At the time of writing, it is not clear whether and how this will be effected. Similarly, the Scottish Government recently published a proposal that the Scottish Funding Council should work more closely with universities to consider how overlaps are best removed through greater collaboration or “where the case exists”, merger (Scottish Government, 2011).

6 It is interesting that business school heads recently claimed that they were contributing too much in subsidies to other subjects (Matthews, 2011a). This could well be a harbinger of things to come.

7 Thompson and Bekhradnia note that whilst there will be the reduction in the HEFCE teaching grant, there will be the additional costs of the fee loans. Present estimates of these depend on fees after waivers being an average of £7,500 per student. If the fee levels are higher so will be the cost of the loans and the level of the RAB charge (the difference between the initial cash outlay on loans and the estimated repayments, discounted to take account of inflation and the Government’s cost of borrowing). The RAB charge given by the

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Government is uncertain – it depends on long term earnings forecasts – but almost certainly overoptimistic (Thompson and Bekhradnia, 2011: paragraphs 4-28).

8 For reasons of time, I have said nothing about the likely impact of these reforms – not to mention the activities of the UK Borders Agency – on our ability to attract overseas students, which truly is the lifeblood of our system. A recent article in The Chronicle of Higher Education described how US and other overseas providers were already experiencing sharp increases in applications from British students (Labi, 2011).

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